Cost Estimating of SWRO

Desalination Plants
Day 2: Total Capital Costs and
O&M Expenditures
June 26, 2013

9:00-10:30

2.1 Estimating
Indirect and Total
Capital Costs
Water Globe

Nikolay Voutchkov, PE, BCEE

Estimating Indirect and

Total Capital Costs

Summary of Direct Capital Costs

Overview of Indirect Capital Costs

Costs for Project Engineering Services

Project Development Costs
Costs for Enabling Public Participation
Project Financing Costs

Assessment of Total Capital Costs

Desalination Cost
Components

Capital Costs:

Operation & Maintenance Costs:

Construction (Direct or Hard) Capital Costs;

Indirect (Soft) Capital Costs.

Variable;
Fixed.

Cost of Water:

Annualized Capital Costs;

O&M Costs.

SWRO Desalination Plant

Cost Breakdown

Seawater Desalination Plant

Construction (Direct Capital)
Costs
Pretreatment
15% to 20 %
of Construction
costs

RO System
40 % to 60 % of
Construction Costs

Discharge 5 to 15 %
of Construction Costs

Intake 5 to 20 %
of Construction Costs

Summary of Construction (Direct) Capital

Costs

Seawater Desalination
Plant Soft (Indirect
Capital) Costs

Project Engineering

Project Development &

Environmental Review

Project Financing

Contingency

Summary of Soft (Indirect) Capital Costs

Project Engineering Services

Soft (Indirect) Capital Costs

Project Engineering Services Preliminary
Engineering

Preliminary Engineering - US$10 to 100/m.day

Includes:

Initial Assessment of Project Feasibility

Definition of Project Scope and Size
Studies required to determine project location
Intake and Outfall Assessment Studies, etc.
Conceptual and Preliminary Project Design

Soft (Indirect) Capital Costs

Project Engineering Services Pilot Testing
(Recommended for Plants > 40 MLD)

Pilot Testing

Includes:

Construction of Pilot Unit US$10 to 50/m.day

Pilot Unit O&M US$15,000 to 20,000/month

Installation of Pilot Unit

Operation for 6 to 12 months (or more)

Aimed to Capture Worst-case Source Water

Quality Conditions

Pilot Testing Unit in

Carlsbad, California

Why Pilot Test?

Confirmation of Production Capacity;

Operation Under Varying Source Water Quality;
Selection of Pretreatment System;
Evaluation of Alternative Source Water Conditioning
Chemicals;
Assessment of SWRO Membrane System Performance
Under Extreme Conditions:

High & Low Temperatures & TDS;

Algal Bloom (Red Tide) Conditions;
Storms & Heavy Rains;
Dredging Operations, Boat Traffic & Other Challenging Events.

Testing of Concentrate Management & Product Water

Conditioning Alternatives.
Public Relations Explaining the Benefits of Desalination

Soft (Indirect) Capital Costs

Project Engineering Services Detailed
Design

Detailed Design - US$100 to 300/m.day

Includes:

Development of Drawings and Specifications

Preparation of As-built Drawings

Soft (Indirect) Capital Costs

Project Engineering Services Construction
Management and Oversight

Construction Management and Oversight US$20 to 150/m.day

Includes:

All engineering activities associated with plant

construction
Day-to-day management of construction
contractors and suppliers
Addressing changes in design and construction

Summary of Soft (Indirect) Capital Costs

Project Development

Soft (Indirect) Capital Costs

Project Development Project
Administration, Contracting and
Management

Project Administration, Contracting and

Management:

US$20 to 300/m.day

Costs Depend on Owners In-house Capabilities

Includes:

In-house Expenditures for Owner Staff

Overhead Associated with Project Implementation
Costs for Contracting Outside Engineering Consultants
and Financial Advisors

Soft (Indirect) Capital Costs

Project Development Environmental
Permitting and Community Participation

Environmental Permitting - US$80 to 400/m.day

Community Participation US$20 to 100/m.day

Environmental Permitting Costs Include:

Costs for Preparation of Environmental Studies

Permit Application and Processing Fees

Community Participation Expenditures Include:

Preparation and Mailing of PR Materials

Organizing Public Meetings the During Environmental
Review Period
Developing Project Internet Site to Share News and
Pictures from Project Implementation

Community Participation
Public Relation Materials

Soft (Indirect) Capital Costs

Project Development Project
Administration, Contracting and
Management

Legal Services:

US$50 to 150/m.day
Costs Depend on Project Complexity, Controversy and
Public Acceptance

Includes:

In-house expenditures for development of contractual

documents
Negotiations with third parties to secure entitlements
Address legal environmental permitting challenges

Soft (Indirect) Capital Costs

Project Financing

Soft (Indirect) Capital Costs

Project Financing Expenditures Interest
During Construction

Interest During Construction 0.5 to 4.5 % of

total Capital Costs

Funds for payment of debt service

obligations during the period of project
construction.

Usually during construction phase Owner

pays interest only on the money used for
construction.

Soft (Indirect) Capital Costs

Project Financing Expenditures Debt
Service Reserve

Debt Service Reserve:

Typically 2.0 to 8.5 % of total project capital costs

Intended to protect project lenders against Owners
inability to repay debt when project revenue generated
from plant operation is insufficient.

Size of Debt Service Reserve one of the three

values:

Maximum annual debt service;

125 % of the average debt service;
10 % of the principal.

Soft (Indirect) Capital Costs

Project Financing Expenditures Other
Financing Costs
Other Financing Costs 0.5 to 4.5 % of total Capital Costs

Working Capital typically 15 to 20 % of the capital costs and

annual O&M costs;
Insurance Reserve for self-insurance or insurance coverage of
items not covered by traditional insurance policies.

Soft (Indirect) Capital Costs

Contingency

Contingency 5 to 10% of Total Capital Costs

Contractor Cost Overruns

Unknown Subsurface Risks
Inclement Weather

Size Depends on:

The Accuracy of the Cost Estimate;

Project Complexity

Sources of Project Funding

Government Funding:

Conventional (Bond or Construction Loan)

Financing - Issuing long term debt:

Grants and Subsidies

Sovereign Guarantees for Payment for Water Supply
Services

general obligation bonds 2.5 to 4.0 % interest

Tax-exempt public or private activity revenue bonds
3.5 to 6.0 %
Taxable debt/bonds 4.5 to 8.0 %

Commercial bank loans 150 to 275 points

over London inter-bank offered rate (LIBOR)

Sources of Project Funding Private Project Financing

Private Project Financing:

Projects Funded by Combination of Equity and

Debt

Source of funds Private Lenders

BOOT Projects Funded by private financing.

10 to 25 % Equity @ interest rate of 12 to 20 %

75 to 90 % Debt Syndicated Loans and/or Bonds

Funding by Multilateral Lending Agencies:

European Investment Bank Projects in Israel

European Regional Development Fund Spain,
Malta Plants
EU Water Sanitation Program

Comparison of Project Funding

Alternatives

Government Financing:

Key Advantage - Lowest Cost for the Final User;

Key Disadvantages Scarce & Limited.

Bonds and Construction Loans:

Key Advantage Low Cost Funds (3 to 8 % rate);

Key Disadvantages Limited by the Credit Capacity of the Water
Agency & Complex Approval Process.

Private Project Finance:

Key Advantage Utility Responsible to Pay for Services &

Borrowing Capacity Not Impacted;
Key Disadvantages Usually More Expensive for Small and LowRisk Projects.

Summary of Soft (Indirect) Capital Costs

Total Capital Costs Sum of Direct and

Indirect Capital Expenditures
Cost Item

% of Total Capital Costs

Low Complexity
Project

High Complexity
Project

70-85 %

50 68 %

Engineering Services

5-8 %

9-12.5 %

Project Development

2-6 %

8-10 %

Project Financing

3-9 %

9-17.5 %

15-30 %

32-50 %

100 %

100 %

Subtotal (A) - Construction (Direct Capital)

Costs

Subtotal (B) - Soft (Indirect Capital) Costs

Total Capital Costs (A + B)

Indirect Capital Cost

Comparison

Conventional Water Treatment Plant:

Indirect Costs - 15 to 25 % of Capital Costs;

Seawater Desalination Plant:

Indirect Costs - 15 to 50 % of Capital Costs.

Where Does the Difference Comes from? Cost of Project

Related Risks (Intake and Source Water Quality; Permitting;
Technology; Reliability, etc.).

This Difference Helps Understand Why Majority

of the Large SRWO Projects Worldwide are
Mainly Completed Under BOOT Delivery!

Capital Costs of Key Desalination

Plants in Algeria
(Cost of Water - US$0.7-1.1/m)

Plant

Capacity (MLD)

Total Capital Cost

(Million US$)

Hamma

200

258

Skikida

100

136

Ben Saf

200

240

Fouka

120

180

Mostaganem

200

291

Cap Dijinet

100

138

Magtaa

500

492

Tenes

200

231

Honaine

200

291

Question
s?

POSEIDON RESOURCE
S

Coffee Break